Production pacts dwindle and terms get tighter

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Related Chart: Facts on Pacts 2010

The erosion of Hollywood’s studio deals is accelerating.

In the half a year since Varietys last Facts on Pacts compilation, the number of term deals at the major studios has dropped 12%, to a total of 133, as the majors continue their cost-cutting efforts.

Significant names whose deals have expired in the last six months include David Friendly, Paul Haggis, Nina Jacobson, McG, Chris Nolan’s Syncopy, Principato-Young, Brian Robbins’ Varsity, Gary Ross’s Larger Than Life, Charles Segars’ Sparkler Entertainment and Robert Simonds.

The number of studio deals is now 55% fewer than a decade ago, when 292 deals were listed in Varietys 2000 report. That number fell to 241 in 2001, stayed fairly consistent for the next half-dozen years and then plunged to 184 two years ago and 151 last year. (The figure does not include 22 pacts at such players as Relativity, Imagenation Abu Dhabi, Overture and Reliance).

While over two dozen deals have expired, only 10 new deals have been signed over the past six months.

It’s not just that there are fewer deals,” says Marshall Herskovitz, president of the Producers Guild of America. “It’s also that the amounts of money spent by the studios on the deals has fallen precipitously.”

In the early 2000s, typical three-year deals usually had three components — overhead costs for an office and staff, often well over $1 million annually; an annual discretionary fund of about $750,000 for purchasing material, usually with a $250,000 per-project cap; and a guaranteed fee of around $1 million as an advance on producer’s fees.

The downside for producers who got movies produced was that all that studio spending would usually be charged against profit participation monies. That’s been an incentive for producers to strike out on their own without a studio deal.

In recent years, studios have ratcheted back significantly, with veteran producers estimating that spending on term deals is less than half what it was as little as eight years ago — except for the largest and most-established producers, such as Jerry Bruckheimer at Disney and Ron Howard and Brian Grazer’s Imagine Entertainment at Universal.

Discretionary funds don’t exist; overhead and guarantees have been slashed.

In this new world for producers, having a smallish deal is viewed as being helpful since it gives the producer more leverage when negotiating fees and participation on a greenlit film.

If they’ve spent less on you, you can be far tougher at negotiations,” says one producer. “In today’s world, you need the flexibility to move as quickly as possible.”

The 2000 edition of Facts on Pacts tallied 24 deals at DreamWorks, 33 at Miramax and 22 at New Line. The numbers at those respective studios are now down to just two, one and three.

Four of the five deals at MGM/UA have expired as the Lion scrambles to survive. Its longtime pact with Danjaq Prods, producer of the James Bond films, is the only surviving accord.

Warner Bros. is the only studio that’s increased its deals since last fall, adding three to total 31. Warners signed a pair of high-profile duos — Matt Damon/Ben Affleck and Robert and Susan Downey — along with Zac Efron, Hollywood Gang and Kevin McCormick’s Langley Park.

Curiously, Disney’s kept its number of deals at 20, even though it had been widely anticipated that studio chief Rich Ross would kick loose a significant number of pacts and see the departure of Scott Rudin, who’s been looking to leave the Disney lot before his deal’s over but hasn’t yet landed a new home. Rather than scaling back, the Mouse House actually signed a new deal with Miley Cyrus and her Hope Town entertainment. And even with Disney’s March 12 announcement that it will shutter ImageMovers Digital, Robert Zemeckis’ animation shop, it’s maintaining the banner’s production deal.

One producer who still has a deal — but declined to be named out of concern for possibly losing his ride — acknowledges that reimbursement for overhead and other costs has plunged. He says the key benefit to keeping a deal these days in having access to new material. “If you don’t have a deal, you’re not going to get sent scripts when they go out,” he says.

Herskovitz, who concludes his four years as PGA topper this spring, says the overall decline in deals should come as a no surprise given the economy and the studio mindset these days.

I feel like a broken record saying this but, generally, studios only want to make tentpoles now, so that means there’s not a lot of interest in other films,” he says. “The surviving deals tend to be with high-volume producers, so if you’re only generating one film every two years, they probably aren’t going to want to keep you.”

Herskovitz says the impact of the shift isn’t likely to be visible immediately or prominently. He anticipates that there will simply be fewer original screenplays sold, an ever-increased reliance on franchise fare and a heightened risk that audiences will eventually grow tired of action pics.

Herskovitz and producing partner Ed Zwick saw their deal through their Bedford Falls banner with Warners go away after they produced two pics — 2003′s “The Last Samurai” (which toppped $450 million worldwide) and 2006′s “Blood Diamond,” which grossed more than $170 million worldwide, that each carried a price tag of about $100 million.

I don’t think ‘Blood Diamond’ could get made today — at least not the way we made it,” Herskovitz says. “It was very challenging and very expensive, so the potential margins (were) just not good enough.”

Bedford Falls, which dates back to 1985, now has a producing deal through Mark Cuban’s 2929 Entertainment and continues to produce such movies as the upcoming “Love and Other Drugs,” set to open in November for Fox.

A signficant number of major stars have kept their studio deals going — most notably Will Smith’s Overbrook at Sony, Brad Pitt’s Plan B at Paramount, Ben Stiller’s Red Hour at Fox and Clint Eastwood’s Malpaso at Warners. But the trims have come in the so-called “vanity” deal arena for actors and directors. The latest to go away: Nicole Kidman’s Blossum Films at Fox, McG’s Wonderland Sound & Vision at Warners, Pierce Brosnan’s Irish Dream time at MGM and Dr. Dre at New Line.

Several producers without deals reflect on the change in mindset that comes with going solo: They can be more independent in their choices of material.

And keeping busy is always a diversion from fretting over where your next studio check is going to come from.

Nina Jacobson, former studio president at Disney, saw her deal with DreamWorks expire earlier this year. But with the need to get “Diary of a Wimpy Kid” to the finish line, she hasn’t spent much time pursuing a fresh deal.

I had to get the movie done, so I’ve put getting another deal on hold until after it opens,” she says. “I’m considering a couple of different options.”

Related Chart: Facts on Pacts 2010

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